Here in the land of fruits and nuts we paid $3.89 for a gallon of the cheap stuff on Monday night. No doubt, gas prices will soon top $4 per gallon. No doubt, these gas prices bite. But not only do they bite at the pump…soon they’ll take a big fat bite out of the economy too…
“Nouriel Roubini, the economist who predicted the global financial crisis, said an increase in oil prices to $140 a barrel will cause some advanced economies to slide back into recession,” reported Bloomberg on Tuesday.
‘“If you had the oil price going up to where it was in the summer of 2008, at $140 a barrel, at that point some of the advanced economies will start to double dip.”’
Rahm Emanuel, Chicago Mayor-elect and former Obama Chief of Staff, once remarked that a crisis should never be ‘wasted.’ Sensing a budding crisis of rising gas prices, Atlanta Fed President Dennis Lockhart preemptively seized the opportunity on Monday to warm the hearts and soften the minds to QE3.
“If oil prices continue to climb, it could force the Federal Reserve to make a new round of asset purchases, according to Atlanta Fed President Dennis Lockhart,” reported CNNMoney.com.
“‘If [the rising price of oil] plays through to the broad economy in a way that portends a recession, I would take a position we would respond with more accommodation,’ Lockhart said”.
Sputtering on Fumes
‘More accommodation’ means more debt monetization. In other words, it means more funny money from the Fed. Of course, that’s the only thing the Federal Reserve knows how to do… To give the world more of what it already has too much of – debt based money.
After decades of this the economy is now entirely dependent upon the Federal Reserve’s monetary gas. If they let the tank run dry the economy will sputter on the fumes for a moment, and then stall. But if they pump it up too much prices respond by adjusting upward.
Bill Gross, the Bond King, thinks the economy will slump when the Fed ends its QE2 debt monetization scheme at the end of June…
“I suspect that it’s not as self-sustaining as they [the Federal Reserve] think,” said Gross on Tuesday. “I suspect that we’re not standing firmly on our own two legs and that ultimately we’re going to continue to need some stimulation from the government.”
Government stimulation means debt monetization. Debt monetization, remember, is when the Federal Reserve borrows money into existence and lends it to the U.S. Treasury. It’s absurd…and a fraud. Yet it passes for enlightened monetary policy these days.
A Monument to Ugliness
Obviously, government stimulus is not without consequences. For one thing, it’s a magnificent way to run up the deficit. Here’s what we mean…
“According to Congressional Budget Office (CBO) figures released Monday,” reported the Washington Times, “the budget deficit for February hit a staggering $223 billion – meaning the Obama administration added more in debt last month than was borrowed in all of 2007.”
Fortunately for the government, February only had 28 days. If it had 30 or 31 days, like most months, the numbers would have been much worse…between $231 to $239 billion. To help us grasp what’s going on, the Times puts things into perspective…
“Under Mr. Obama, government has been borrowing $4.6 billion each and every day. That’s more than it cost to construct the world’s tallest building, Dubai’s Burj Khalifa. In other words, the amount of future productivity being sapped from the American economy would be sufficient to construct a new 160-story skyscraper every day of the year.”
If you’ve never seen a picture of the Burj Khalifa, you’ve not borne witness to the supreme monstrosity of the world. It appears as if an entire army of architects was coopted to develop the most grotesque design imaginable. That somehow the ingenuity of man was diverted and misdirected into a monument to ugliness…a hideous eyesore stretching to the heavens, begging the gods to strike it down.
But, alas, that’s just one day in the life of the U.S. economy. There are 364 more days of repulsive disfigurements to go. Yet the absurdities, while less diabolical, are everywhere and around us. In fact, they are in such abundance they seem normal.
for Economic Prism